Group critical illness insurance: a trend toward more competitive products

Advisors have been clamouring for more accessible and competitive products in the group insurance sector, The Insurance and investment Journal has learned.In response, insurers are upgrading their offerings or introducing new products. Desjardins Financial Security (DSF) announced to its troops that it is launching a new product in February. Manulife Financial recently released Health Service Navigator, a telephone and online assistance program largely used for health advice and referrals to clinics and physicians. Sun Life also rolled out new features last year, including independent coverage for children, standardized definitions and improved options for illnesses covered.

Sun Life reports a rise in sales growth. “This is a small but growing market. Our sales have grown 25% each year in the last two or three years. The overall market also continues to grow at a good pace,” Shawn Kauth, assistant vice-president, product development, client solutions, at Sun Life explains.

As the market evolves, he thinks that efforts to simplify the CI product and make it easier to understand will deepen its inroads in the distribution network. Mr. Kauth adds that the winning products will be those offering support to participants, for example during a claim or when they return to work.

The AXA product – viewed as the market leader in terms of premiums in force, will become SSQ Financial Group’s flagship product in this sector. SSQ acquired AXA’s life insurance operations in September, and began to manage them on January 1. Introduced in the 1990s, Critical.Choice.Care was recently completely overhauled by AXA. This revamped product is a success said Carl Laflamme, vice-president sales and marketing at SSQ.

“Critical.Choice.Care will probably become our standard group CI product. Before buying AXA, we had thought about reworking our old product, wondering if it would be worth it just for a few more sales. The acquisition delivered an excellent product that has boosted sales and attracted six new representatives (account managers) in group insurance to date. AXA is also present in new niches for us, such as expatriate workers and some large groups that subscribe to AXA’s flexible accidental death and mutilation program, such as Costco, Scotia Bank and National Bank of Canada,” Mr. Laflamme told The Insurance and Investment Journal.

The group CI market is fairly modest, M. Laflamme adds. He put the market share of Critical.Choice.Care at a few million dollars in premiums in force distributed across Canada. In fact, sales were brisk in the first 11 months of 2011, as the product racked up $1.7 million in new premiums. “In the AXA line, we see Critical.Choice.Care as having very good growth potential, especially in optional insurance,” he says.

Group CI protection usually comes in two forms: mandatory for all employees with fixed coverage, and optional, where employees can select the coverage amount, or forgo it entirely. RBC Insurance offers a different formula with an individual product where employees keep the coverage even when they leave the employer.

Advisors confirm this upswing in interest. In the mid-2000s, the product hit the spotlight with the expansion of the number of illnesses covered. “Group critical illnesses insurance is attracting a lot more awareness than before, and more competition. A lot of brokers are talking about it,” says Lorne Marr, founder of Ontario based MGA LSM Insurance. Many advisors are currently working on cases in group insurance that include critical illness coverage, he notes. “Group critical illness insurance now accounts for 25% to 30% of our group business,” he adds.

Often perceived as a complementary product tacked onto an existing program, critical illness insurance can also be a stand-alone group product, he continues. It can even serve as a door opener to new sales by bringing opportunities for cross-selling, he explains.

It is especially popular with small businesses for coverage amounts between $10,000 to $25,000. “It opens the doors for other needs, such as additional individual CI,” Mr. Marr says.

The product is ideal for retaining staff or protecting key resources at SMEs, no matter how small. At Co-operators, for example, participants in groups of 3 to 24 can obtain coverage starting from $5,000. La Capitale also offers coverage in $5,000 brackets. A product developed by ACE Life in cooperation with third-party administrator SAGE gives all employees mandatory coverage of $1,000. Optional protection ranging from $10,000 to $100,000 is also available. Proof of insurability is not required for the first $10,000.

SAGE CEO Denis Plante underlines the low cost of this protection. Promoter of the ACE Life program, the firm, with offices in Québec City, Montreal and Ottawa, offers coverage of $10,000 for 16 illnesses without proof of insurability for $1.42 per month (male or female non-smoker under age 30).

“About 75% of our clients have purchased the plan with at least mandatory coverage,” Mr. Plante says. Group CI insurance has a distinct advantage over the individual product: insurers never ask questions about the family medical history, regardless of the coverage amount, he points out.

Mr. Plante expects the interest in group CI products to continue. The scarcity of qualified employees is prompting employers to offer better salaries coupled with more generous employee benefits, he says. “This explains the popularity of health management accounts and other coverage that’s less costly than drug insurance, such as CI. We are seeing more and more modular plans where employees choose the coverage depending on their needs,” he adds.

Quotes risingDesjardins Financial Security (DFS) confirms the trend of increased interest in group critical illness coverage. “In the past year and a half we have noticed more quotes in this niche even if they have not yet had an impact on sales. We are also receiving more requests from advisors,” says Nathalie Laporte, director of product development and marketing, group and business insurance at DFS.

DFS has been offering CI since the late 1990s. Initially numbering only a handful, the number of suppliers have more than doubled in the last two decades, Ms. Laporte says, to reach 14 players. She welcomes this trend. “This product should be promoted more. The more employees are aware of it, the more they will ask for it. We always offer it to our clients during group renewals,” she says.

To capitalize on this momentum, DFS has revamped its soon to be relaunched CI product. Notably the product was simplified. There used to be nine different options with respect to the number of illnesses covered. Now there are two options: either four main illnesses or 31 illnesses,” Ms. Laporte says.

DFS also extended the coverage. It no longer ends with the first claim. Insured can receive multiple benefits for different illnesses and in the case of a cancer relapse. Plan participants can also convert their coverage into an individual product when they leave their employer.

Insurance amounts accessible without medical proof were adjusted upward based on employer size. At the same time, the prices were cut by over 10%. “We have more experience, and the product has proven its credibility since its launch in 1998 (original product). There are more claims, and they follow pretty much the same profile as in individual insurance. Two thirds of cases are linked to cancer. When you add heart attacks, the proportion reaches 80%. Our reinsurer helps us set our rates,” Ms. Laporte explains.

She named Munich Re as the major reinsurer in the group critical illness market. Asked for an interview by The Insurance and Investment Journal to share its insight on group CI, the reinsurer declined because it is currently surveying Canadian insurers specifically on this market.

Niche playerNiche player Optimum Re also reinsures group CI products. Michel Simard, vice-president, group insurance, confirms there has been growing interest in this product, but cannot yet say whether this will translate into sales. “A client who had not reviewed the product in seven years may update it because of the growing interest in it,” he says. At Optimum, less than 5% of the groups that it reinsures offer CI, Mr. Simard says.

This may change because insurers are stepping up their initiatives. Base amounts are shrinking, Mr. Simard he says. Also, insurers have dropped the pre-existing condition clause to stand out. Others accept claims for one illness even if a participant has already claimed for another one.

In short, insurers are more at ease with the product. Mr. Simard notes that even though group CI has not been very popular thus far, it has still gained experience. “For now, we are seeing a market mainly made up of small insurance amounts because plan members want to limit costs and avoid medical underwriting,” he explains.

According to his estimates, members opt for average coverage of $10,000. Mr. Simard echoes Denis Plante’s view that the cost of coverage is very reasonable. “For coverage of $250,000, the premium is about $250 per year.”

His colleague, senior vice-president, development, André Gaudreault, thinks these low insurance amounts will stoke insurers’ need for reinsurance. Optimum has a few clients that reinsure this risk, for slightly less than $500,000 in premiums reinsured. He estimates the total market (premiums paid to the insurer before reinsurance) to be in the $20 million to $30 million range.